Last week Anaplan, a software business specializing in enterprise planning, with 600 employees and 70,000 users, announced that CEO Frederic Laluyaux had left the company. A board member was quoted as saying, “unbridled growth is no longer the most valued characteristic, now its profitable sustained growth”.
This narrative has been playing out over the last few years. Bill Gurley one of the more outspoken VCs (and realists) stated last spring, “Companies are taking on huge burn rates to justify spending the capital they are raising in these enormous financings, putting their long-term viability in jeopardy. Late-stage investors, desperately afraid of missing out on acquiring shareholding positions in possible “unicorn” companies, have essentially abandoned their traditional risk analysis”.
Huge sums of money have been raised, allowing often, quite inexperienced management teams to pile up losses. Massive marketing and headcount costs have been deployed outstripping paltry revenue achievement. It can work, look at Facebook, but it’s a punt, a Hail Mary. Businesses need to make money at some point. A business losing money is hemorrhaging cash and there is a finite amount of the stuff. So as the VC backed loss-makers consider moves towards profits – we’ve compiled a little checklist that should be helpful:
Turning Losses into Profits
- What’s your breakeven point? – Here’s a little table we posted a few years ago that you will find helpful. Be aware of the sensitivity of your operational margin.
- Adopt a zero-based budgeting approach. Start from scratch and justify every single cost line relative to sales. Further reading on this approach here.
- Adopt a zero based role approach. Think of the company as a person. What does the company need to enable scaling to take place? What roles are essential and what ones are “nice to haves”. Further reading here.
- Conduct an audit of all marketing expenses to understand the ROI (don’t tell me it’s difficult –just make reasonable assumptions, because it’s relative ROI% we’re after, not absolutes).
- Prune the sales team based on achievement not resumes. Quality of the team, not quantity is key.
- Manufacturers need to review every component of their gross margin. Can you negotiate better cash based on future volume? Can you restructure labor costs to incentivize performance?
- Reduce base sales salaries but keep on target earnings (OTE) stable. Consider specific rewards for lucrative penetration into strategic accounts.
- Analyze why you’ve won early sales and double down on that type of prospect.
- The CEO needs to explain to staff that everything we do needs to be related to sales. Everyone is in sales. Teach strong sales processes across the team. Explain the importance of diagnostic questions to understand the outcomes that prospects desire. Remember marketing is about telling your story and sales is about enabling the prospect to tell theirs.
- Model the breakeven point of sales based on the new norm of GM and fixed costs. Set sales targets at 120% of the breakeven sales point. Explain to the sales and marketing teams the importance of working together to achieve targets.
- Revisit positioning based on your early success, ensure your positioning statement captures why early adopters are buying your stuff.
- Align that positioning with every piece of marketing collateral, web site narrative, absolutely every piece of communication to amplify your message.
- Craft your sales engagement strategy with every prospect using the tweaked value proposition. Remember stop thinking features and start thinking outcomes to be achieved.
- Find ways of creating credible video testimonials, case studies, trade endorsements, partnership agreements and be sure to broadcast the quality of new hires.
- Report early success back to staff in town meetings, emails, white boards, and weekly departmental meetings to spread the word.
- Teach the difference between reckless growth (profitability not a priority) and scaling. We define scaling as “CAPS”, Control, Alignment, Predictability and Safety. Rewire the brains of the team. Same mission statement, tweaked positioning with all resources focused on profitable scaling.
I hope this initial list helps. We have a comprehensive Discovery, Diagnosis, Design and Delivery system to transform loss makers. Reach out at Ian@TPPBoston.com.
